Blackstone’s Private-Equity Returns Trail the S&P 500

The S&P 500 index has been crushing private-equity returns in the past year, and Blackstone ’s second-quarter results illustrate that trend.

As part of its earnings release early Thursday Blackstone said its corporate private-equity returns in the year ending in June were 11.3%. That compares with a 24.5% total return for the S&P 500.

In the prior year ending in June 2023, the S&P 500 topped Blackstone with a 19.4% return against 9.7% for the firm’s corporate private-equity business, which has $145 billion of assets and remains one of its most important areas along with real estate.

Blackstone is the leading alternatives firm with over $1 trillion in assets under management and has the largest market value of any public investment firm at more than $160 billion.

Driven by Nvidia , Microsoft , Apple , Amazon and other big technology stocks, the S&P 500 has handily topped most asset classes in the past several years.

Another sign of more difficult times for private equity came earlier this week from Calpers, the $503 billion California pension fund, when it reported it s preliminary returns for its fiscal year ending in June . Calpers is one of the first major endowments or pension funds to report results for the June fiscal year. undefined The pension fund, a major player in private equity, said its private-equity investments gained 10.9% net of fees—although that figure is lagged one quarter. Calpers’ public-equity investments were up 17.5% in the year ended June—its strongest asset class. Private equity remains a favorite of many pension funds and leading university endowments like those of Harvard and Yale. Their view is that private equity can beat public-market returns over the long term.

But the private-equity business has gotten tougher in recent years due to keen competition for deals, higher interest rates and a less receptive IPO market, which has made exits tougher.

And private-equity portfolios of firms like Blackstone look nothing like the S&P 500, given their investments in small to midsize companies.

Blackstone, for instance, bought a majority stake in Emerson’s climate technologies business last year and more recently purchased Tropical Smoothie, a franchiser of fast-casual cafes. It also holds a stake in Bumble, the publicly traded online dating site, and it’s an investor in actress Reese Witherspoon’s media company, Hello Sunshine. Blackstone’s corporate private-equity business runs $145 billion and has 82 investments, according to the firm’s website.

Blackstone’s private-equity business has strong long-term returns including a gain of over 50% in the year ended in June 2021 when it handily topped the S&P 500 index.

But the S&P 500 index has become difficult to beat more recently and it’s dominated by some of the best companies in the world. It carries less risk than private equity, given the cash-rich balance sheets of its leading companies like Apple , Microsoft and Alphabet .

Private-equity firms, by contrast, often use considerable leverage to boost returns. Investors can get exposure to the S&P 500 through index funds that charge 0.1% or less in annual fees and with immediate liquidity.

A key risk with the S&P 500 is its vulnerability to a selloff in the leading tech firms that now make up over 40% of the index. The recent rotation into smaller companies illustrates that.

Blackstone shares gained 1.1% to $136.31 Thursday in the wake of its earnings news as investors focused on rising investment deployments and positive management comments on the firm’s outlook.

The firm’s nearly $40 billion of inflows and $34 billion of capital deployment during the second quarter marked “the highest level of investment activity in two years,” Chief Executive Officer Stephen Schwarzman said in a statement.

Citi analyst Christopher Allen wrote in a note to clients on Thursday that while Blackstone’s overall performance was mixed, the outlook appears to be improving given fund-raising and deployment trends.

Investors also were heartened by Blackstone President Jon Gray’s comments about a bottoming in commercial real estate and strong capital deployment in that area.

But ultimately, the game for Blackstone and its alternatives peers is about performance—particularly beating low-fee public investments like the S&P 500. That seems to be getting more difficult.

For Ray White AKG Group chief executive Avi Khan and his fiancée, top-performing agent Kaylea Sayer, no multimillion-dollar property transaction could rival their most treasured arrival, daughter Zara Mae Khan, born just in time for Valentine’s Day.

In a testament to her renowned work ethic, Ms Sayer continued assisting clients from her hospital bed just days after giving birth, finalising settlements while cradling her newborn daughter.

“I had two properties settle yesterday,” said Ms Sayer, who worked right up until Zara’s arrival.

“I am so grateful for my clients, buyers and sellers, they’ve been amazing – I was literally lying in bed organising settlements.”

Weighing 3.5 kilograms, Zara made her entrance at 11.28 pm on Sunday, February 8, at Mater Mothers’ Private Hospital in South Brisbane, arriving just one day after her due date.

“It was my due date, and I was having lunch at mum’s when I started feeling a bit off,” Ms Sayer said.

“I said to Avi, ‘I think we should go home.”

Later that day, her waters broke at home, and the couple headed to the hospital, where an emotional four-hour labour followed.

The experience became even more meaningful when Ms Sayer’s obstetrician, Dr Jill Cox, who was not scheduled to work that weekend, logged in remotely before travelling to the hospital to personally assist with the birth.

“She wasn’t supposed to work that weekend, but she came in around 10 pm,” Ms Sayer said.

“I thought she had just come into work, but she told me she came specifically to help Avi and I. It was so nice having her there.”

For Mr Khan, already a devoted father to Aisha, 12, and Amir, 10, welcoming Zara brought a profound sense of perspective.

“It’s hard to put into words,” he says softly. “In that instant, everything else fades away. Nothing matters except that little heartbeat in your hands.”

“Even the third time, it doesn’t feel routine. It feels sacred. You look at them and think, ‘I am a father.’ And it hits you just as powerfully as the first time.”

The couple selected the name Zara for its shared cultural significance.

“We wanted something that resonated with both our identities,” Mr Khan said.

“Zara means princess, radiance, and blooming flower. It has really cool meanings in both English and Muslim backgrounds”.

Ms Sayer’s professional drive has been evident throughout her career. Entering real estate at just 16 years old, she worked throughout her pregnancy, including helping organise the company’s flagship The One conference, which attracted more than 1000 of Australia’s leading real estate performers while she was nine months pregnant.

“January was actually the easiest month,” she said.

“I knew I was on the home stretch.”

Valentine’s Day celebrations this year, however, will take on a more intimate tone.

“We’ll probably be changing nappies, eating in, and watching a cool movie together,” Mr Khan said.

With strong family support, a high-performing team and now baby Zara completing their household, Mr Khan believes balancing professional ambition with family life is both achievable and deeply rewarding.

“There’s no manual for any of this,” he said.

“But with good family, good support, and a good team around us, we’ll figure it out.”

Blackstone’s Private-Equity Returns Trail the S&P 500

Powerhouse real estate couple Avi Khan and Kaylea Sayer welcome their daughter while balancing record-breaking careers, proving success and family can grow side by side.